All right. Let's get rolling.
So this talk, how do I get here quickly, what is 500? Changes in tech and venture capital is probably that I talk about the most, a little bit how we're trying to do that. One piece of that is Lean VC and then a little bit of other things about our approaches to venture capital, accelerators, AngelList, et cetera. And global entrepreneurship that sounds high-minded, but we actually do believe a lot in that and then if you want to sort of engage me on anything else, and there's time left, I'm happy to do that and you can do that in the middle as well. So how did I get here? I started out as an engineer and geek. I graduated from Hopkins barely in 1988. That took a little longer than expected actually. I got there two years early but I ended on time.
So you can figure that story out. I started out - came to the Valley in 1989, actually this is the good part of this, so there it is. Hillbilly, born in West Virginia, hick sort of, math and CS, although the degree was in applied math, they didn't have a CS program separate from EE. I was a programmer for at least about 10 years or so. My first paid gig was doing some payroll reports for my mom. And then started a company that was really sh**ty company, I didn't - anyway it's long - like sad story. I learned a lot at that. It was like two years as an independent consultant, about three years going from 2 to 20 people and actually 2 to 20 and then down to 10 and then back up and then not quite making payroll and making payroll and like all sorts of stress and crazy sh**. And we had a very small and desperate acquisition that I don't really like to brag about except that it wasn't a zero, so it was a modest win, but it took a f**load long-time and - sorry.
Yeah, warning, I swear a lot, my slides are ugly and that's intentional and you might remember that. Other warning, this will be broadcast all over the world. Hi. To potential investors in Arabic countries and others, Singapore area, is like I'm really not this kind of person. Yes, I am. So Aslan Computing named after the lion, for those of you who are Narnia fans, was about a seven year exercise. Did get a small amount of money out of that, less than $1 million, but more importantly paid off a lot of debts that I had. So it was kind of a win, but more experience than - experience of what you get when you don't get what you want and I have a lot of experience.
I kind of took some time off in 1999 and 2000, played around little bit, and ended up at PayPal very, very fortunately. Kevin Hartz, who is the Founder and CEO at Eventbrite was a friend of mine and was an early investor in PayPal. I think even while he was here at Stanford. And interesting, like I went to a PayPal party in 1999 when they were doing the beaming on the PalmPilots, I was like, this sh** is never going to work. This company is like f**ed. Again, I'm stupid. Two years later I came crawling back to that company wanting to work there and it was like awesome to get a job there.
In 2001, the Valley was pretty really down negative desperate place; even really smart people are getting laid off all over the place. I got laid off from a company called AppStream. It went from about 150 to 30 people in about three months. Then it raised $35 million, so that was not wonderful. PayPal was a amazing place, but I was just learning marketing, so I was kind of switching out of the business engineering role and into more marketing and that's where I got to play around with some really amazing stuff.
So a company that was working, and audience that was very engaged in using e-commerce or payments depending on how you look at it, and towards the end of that and PayPal went public in a really tough time and then got acquired by eBay and I got a little bit of money out of that. And I started doing angel investing and that was kind of sort of following in Peter and Reid's footsteps, although they had a couple of extra zeros after their checks.
And I'll tell you more about that, but put about $300,000 into maybe 13 companies between 2004 and 2008 and then was trying to launch my own fund which didn't quite work, actually I tried to launch a fund in about September 2008. This other thing called Lehman happened around then. Not good timing. And my fallback on that was Sean Parker was looking for someone to help do marketing at Founders Fund.
Justin Fishner-Wolfson is a friend of mine in the back who is also an escapee from Founders Fund. But Sean was gracious enough to give me a gig and when I asked him for a couple million bucks to invest he also let me play around with that. So that was my first real full-time job in VC, which was Q4 of 2008, like, absolutely astonishing that anybody got hired in venture capital at all. In 2008, much less me. And that was my ticket to the party and that was amazing and a lot of other stuff happened after that.
And so just real quickly, so I have been doing angel investing with about $300,000 budget, went to Founders Fund, had about $2 million or 3 million to play with from their fund too, which was like about $220 million and then also from Facebook fund which I took over and ran for summer in 2009. I got really awesomely lucky and got to invest in some amazing companies, Twilio, SendGrid, SlideShare and Mint were me personally, Wildfire, and a few others, which I've done okay - pretty good actually. So in 2010, I was trying to get 500 Startups off the ground.
Just to kind give you a sense, this is not a perfect story, but if you think about kind of different stages of venture capital, big may not be the right term, I don't know $100 million or $500 million is kind of like more traditional size funds. There is mega. That is like over $500 million, $1 billion funds. Micro, which is kind of where we play; I call that less than $100 million. And then less than $10 million usually more angels and incubators. And then you have Kickstarter and AngelList, Bootstrap, all sorts of other stuff.
So we generally operate kind of in the incubator stage and in the micro VC stage. We run and accelerate a program, actually three of them. One that's launching in San Francisco next week, one in Mountain View here, and one in Mexico City. But we also do seed investing as well. A lot of you will think we are at war with everybody else in this pyramid and sometimes but not really. We depend a lot on all the folks to help do downstream capital investing and actually several of those are at least in small stages, some of our investors as well. That's very West Coast view of VC. There is a not a lot of other folks in there, but that's kind of like how that maybe operates today.
So what are we? We are seed fund and a startup accelerator. We have been around about four years now. We have maybe $100 million under management, about $7 million budget. If that math sounds weird to you, only about half of our budget comes from management fees. We have to be creative about some other stuff. We have about 30 people on the team, which kind of if you do math again, means we don't pay ourselves very well. We love what we're doing.
About 10 of us are doing investments. The interesting thing is none of us have really been doing that for very long, even me, I have been doing investing for maybe about 10 years, but professionally for maybe only five or so. And we are a little weird for Silicon Valley funding that we operate in a lot of different places. So about 20 people in the Valley, but five in Mexico City and then one kind of each in China, India, Southeast Asia, and Brazil, might do some other stuff. We have a lot of companies. We've done about 650 companies so far. Probably at least 400 of them are still alive, maybe 100 or 200 of them are worth something and we'll get into that a little bit later. We've had some decent size wins, but probably I'm most proud of the fact that I'm just still alive after three or four years. And it seems like a sustainable operation right now at least I think so.
We do a lot of other stuff that isn't venture capital, around conferences, community marketing around this other thing called Geeks on a Plane. Probably visited about, I don't know, 20 to 25 countries a year for the last three or four years. So we do actually have a pretty global view, even though we don't maybe have a deep view in all places.
And so that's kind of a view as to the places we cover. Obviously, one person in China, one person in India, one person in Brazil, doesn't mean we have amazing coverage. But we probably have about 150 or more investments outside the U.S across 40 countries or so. Particular interest and emphasis for us is Latin American market, Spanish-speaking markets and Brazil. China, if we can figure it out. India, definitely over the long haul. Southeast Asia. And we don't have anybody officially in the Arabic-speaking market and Eastern Europe, but we are working on that.
And a lot of thesis is basically lean startup in the Valley, but then kind of taking that around the rest of the world as those markets become hopefully easier to invest in over the next decade or so. So, this is going to be the meat of what I want to talk about. So if you have questions, comments, you disagree, feel free to jump in. I have a very specific opinion about what I think is going on at least in software development and a lot of Internet startups and other people will violently disagree with that.
But the big picture story is that software development costs are lower by a dramatic factor probably two orders of magnitude over the last decade or so. So things that used to cost $5 million, then cost $500,000, now cost $50,000, you could argue they're even like free except for the labor costs. The number of users and bandwidth online is much bigger. Transaction costs are generally better, that's not perfect in a lot of international places.
And so the two big things that a venture capital has historically been used for, like, building product, a lot of cost structure on building product and a lot of cost structure around acquiring customers. Both of those two things in general much, much, much, much, much lower cost at least in the beginning and later stage VCs will always argue that, well, you still need a lot of money to build a big company and I kind of think they're full of sh**, they're just arguing their storyline. There is some truth to that.
However, at least the beginning product development and marketing development stages are pretty inexpensive. Some of the marketing channels are free, not all of them. And if you can do cash flow positive, there is interesting cash flow positive customer acquisition channels you can do some really interesting things without giving up a lot of equity. But most big companies are still raising lots of capital that may change in the future. The big point I'm trying to make here is that a lot of historical venture capital has been CapEx-intensive efforts.
Now, that's still true for many companies that do have manufacturing costs, large sales costs, long product cycle time where things that aren't like profitable right-away. But a lot of experiments now do not cost as much money or you can get to a break-even if you need to earlier than used to be the case. And that at least has the potential to change the structure the way that we invest quite considerably and I would argue that the industry really has not caught up to those changes just yet. I will explain more about that.
The other thing is that as much as technology is amazing, what's really cool is at least for some types of products you can quickly develop, change features, and see how those experiments play out with customer behavior whether that's time on the side with your product or paying for things. So I'm not always perfect. If Apple takes a long time to approve your app through the store, iteration cycles become longer, but generally iteration cycles are short cost cycles - cost structures are lower and your ability to acquire customers is greater. This means everything works faster and cheaper which means we can learn faster and we can do those experiments cheaper. So less capital required to build product is one big piece of the story.
Another big piece of the story is that there are dramatically more people online in many, many different platforms than ever before and your ability to reach them is getting better and better and better all the time. There are probably at least 6 to 10 major platforms where you can reach hundreds of millions if not close to billions of users if you're willing to translate and be culturally relevant. And that has never been the case before ever.
So now is the best of times, but it will probably keep getting better. The one thing that hasn't quite happened yet is that online payments are not completely even and frictionless around the world. So it's pretty reasonable in a lot of Western markets where people have credit cards or other online payment methods. In other countries, particularly some very large countries, credit card penetration rates and online financial method is probably below 10% to 20%. Also smartphone and other web-capable device is probably below 20% or 30%. But those things will likely get solved in the next 3 to 5 years.
So, really high friction on payments and on web-capable devices for a lot of geographies and probably logistics and distribution are also challenging. But those are going to get a hell of a lot better, like, really, really, really a lot better in five probable years and maybe even less. So, Android devices started becoming very, very cheap in lot of large markets. So that means we will be able to reach the other 3 billion to 4 billion people in the world that we can't reach right now pretty soon and that we'll be able to pay for things. And then the last piece of this is that lots of little bets.
So, like, we're starting to change the way we think about doing experimentation both as an entrepreneur, as an investor, and we're starting to do more things at scale. Right? Now, a lot of people will describe what we're doing and what other people like YC and SV Angel are doing throwing darts in the board or spray and pray, whatever, they're all full of sh**, that is not at what we're doing. And what we're doing is a quantitative experiment at scale to do quick cycle-time product development and then increase capital for things that are working and that's actually quite beneficial to everybody downstream.
So a lot of people are criticizing that approach actually are the beneficiaries of what we're doing. And eventually this will become extremely efficient around the world. It's not going to happen just here. Everybody thinks Silicon Valley is f**ing unique in - that's true in some sense, but only because we have had a 50 to 70-year head-start and there are some network effects that sort of keep that propped up. But we won't be ground zero in Chinese; we probably won't be ground zero in Spanish or Arabic either.
But the major thing is that we can do lots of fast experiments that are cheap, they may fail at high rates, but we'll be able to determine success quickly. If you kind of think about, like, this is sort of putting entrepreneurship, at least Internet entrepreneurship, into the Henry Ford era. We're starting to get a**embly-line startup kind of efficiency and that sounds like it's not creative. It is still very creative. Its just we're able to do this at a very, very large scale.
Another piece of this is these platforms that make it easier to reach people and platforms that make it easier to do lots of plumbing. So 10, 15, 20 years ago, lots and lots of pieces of this were not built out, search, social, e-commerce, security, everything else over their messaging platforms, photo, video, et cetera. I think you guys are probably familiar with the icons on the top right, which are WeChat and WhatsApp. Hundreds of millions problem have 1 billion, maybe even close to 1 billion users, those products barely 3 to 4 years old, just like dramatic customer adoption and really frequent, like, usage by those customers.
So just, like, products that didn't exist before just boom, like, takeover, 5%, 10% maybe even 15% of the planet in the future in a matter of like not even months, but years sometimes. And that's interesting for more than just those products and interesting for the things that are right on top of those platforms. That's actually one of the most important distinctions that I'm trying to make is we generally, we, not necessarily other VCs, not trying to find the next Facebook, Twitter, Snapchat, whatever. We're trying to ride on top of all those platforms.
So it just makes it easier to get customers. If we got lucky, maybe we're one of those guys, but those things are actually probably CapEx-intensive and don't happen very often. So one thing that happens with all this, we start doing all these experiments and the ecosystem isn't really caught up to the scale yet and there's lots and lots of companies getting started very cheaply through accelerators, through angels, through Bootstrap, through seed funds and bigger VC isn't quite scale to catch-up with that. And the popular description of that is that's a bad thing. Series A crunch, you're going to raise money for your startup, you're not going to be able to get to Series A, oh sh**! You're going to die, life s**s, no. You might die; it's not a bad story.
In fact if you compare with what was happening a decade ago? So before 2000, two big like cataclysmic events that happened. One, 2000-2001, mostly of our own making shoving a bunch of sh** out the door into the public markets that was not making money, was not sustainable, people basically stealing. Right? Like VCs, investment bankers, everybody stealing from the American public that was a complete large transfer of wealth from retail investors in the public markets to other bankers, just as like sinful as anything else you can think of.
And lots of entrepreneurs and VCs who had crap ton bullsh** companies pushing the public markets worth in some cases billions of dollars, not sustainable. Bad, don't f**ing do that. Unethical, not good business, yes some of those folks made a sh** ton of money, but not good. Right? And here are some of the dynamics of that. In 2008, this was not really a startup world. Catastrophe, it was a financial and mortgage sort of catastrophe that bled over into our world. Right?
There was like whole disruption of capital that happened in 2008, everybody went oh my god! Sequoia is like the sky is falling, there is never going to be funding for next 5 to 10 years, kind of wrong, actually a year and a half later things were kind of fine. But if you look at like the differences in cost structure between just that really short timeframe, may be 8 to 10 years, like, what happened before and after. This was, like, big hardware, big DB that you had to pay millions of dollars for, physical hosting facility, long cycle-time development, not many people online, pretty large rounds of capital to get to market and of limited source of capital that was mostly concentrated may be a couple of miles off the road. Right?
Big fat dinosaur startup, really expensive and hard to get off the ground. Right? And everybody was like super-psyched about the Internet in the late 1990s. But these were the conditions for building a startup in the late 1990s. Fast forward, 10 years later and all this infrastructure underneath you, pay as you go, all sorts of stuff in the cloud, lean startup methods, quick cycle-time development, lots of people online, better monetization, much lower costs of development, like, lots of other sources of capital not completely just Sand Hill Road, but lots of places. Right?
Lean little co*kroach startup, vast differences in how the world progressed, like probably two Cambrian periods at the pa** of a decade. Right? What about this side is bad? What about this side is bad? Question, what's bad about it? f**ing nothing is bad about that. It's awesome. It's great. It costs not very much money to build startups. Lots of people can build startups, lots of things underneath to help you build startups, pretty good capital availability at least in developed markets. This is f**ing great.
Series A control, it's terrible. Wrong. Just lot of big VCs who have sh** ton of deal flow that they can't catch-up to. Okay, that's kind of an issue. Maybe a lot of startups that don't have enough money to get to break-even and are spending too fast, okay, maybe a problem if you kind of go for broke, but in general, not a problem. We are nowhere near as f**ing stupid as we used to be over here. By two orders of magnitude, maybe three, crunch good, crunch bad - Series A bar is higher. Probably need $1 million in revenue, 1 million active users. I don't know, downloads are for sh**.
I would talk to active users anyway, but like high growth rates. So it like lots of incubation and seed startups are going to fail, and fail means a lot of things, but they might not get $5 million of Series A capital. Okay. That's okay. Probably a lot of those folks don't deserve Series A capital.
However, your fail budget lower by one or two orders of magnitude, many failed startups are around and profitable. You might have a small acquisition out of that. It might cost you less than an MBA to fail on a startup. What's worse? Paying $100,000 to go play golf and read about case studies or get $100,000 to fail and learn something over two years about building a business. Sorry, GSB students if you're here. I'm really kind of sour grapes because I didn't get in, I just like keep - if I keep beating on MBAs, I would have gone. If you guys had taken me, I would have gone, really I would have gone. PayPal ended up being a better MBA, but Stanford is not chump change.
Anyway, so the costs of failure are relatively low. If you're in other countries around the world, they're actually higher for the emotional cost and embarra**ment cost of failing, but they are not that bad. Right? So overall, the founders in the market is getting smarter, more focus at least on customers' problem in revenue. If you're not in a market where you think you're going to get to Series A, you have to be break-even or at least getting there pretty damn quick.
So there is a different cla** of businesses you might have to focus on, you might not be able to go hell-bent for a CapEx-intensive business and get financed through to big story. You might have to do other things. So a lot of things you're going to die. Some will survive and some will thrive. Series A crunch, that's so f**ing bad. And this man we should all worship at his feet, Naval - Lord Naval Ravikant of AngelList and others such as FundersClub and Crowd - Kickstarter, et cetera. This is what's changing the fabric of VC.
I mean Paul Graham and Ron Conway in First Round and Andreessen Horowitz, Google Ventures all doing really interesting things in venture capital, but this guy has really ripped the f**ing carpet out from everybody and, like, absolutely changing everybody's position in the game. And we haven't seen all the impact of that yet, but I would like pay attention a lot to syndicates and backers, I think it has a - sorry, I'm an investor, this is full disclosure, but I'm a really small f**ing investor, it is like not that big a deal. But I really think it's going to change how we operate.
Okay, so a summary of the changes that have been happening. Software startup efficiency and reduced capital costs of building those companies, still you might borrow - you might raise a lot of money to build a big business, but in the beginning it's pretty capital-efficient. Markets are growing, lots of platforms with customers to choose from. Major VC industry upheavals; one of our own cause, one not so much of our own cause, neither of them really that crazy as we thought when we were entering them.
The first one probably took three of four years to recover from, the second one only about 12 to 18 months. And this kind of emergence of micro VCs, super-angels, super-angel term is definitely a misnomer. We are a VC. We run other people's money. And people that have made dramatic change, SV Angel, First Round Capital, Y Combinator, really sort of did interesting and different things in their fields. More recently, Andreessen Horowitz, Google Ventures, I'm not sure if I listed them doing pretty interesting stuff, and Angel itself. And that's a plug for a conference that we run that talks about all this stuff.
So as much as I b**h about like the industry being slow to change, in the last 5 to 10 years, it's actually changed; like, there's a lot of things starting to happen now. And so here is our thesis, at least ours, this may not be right, may not be right for everybody is that we can make a lot of investments on very low-cost, even if like 70%, 80% of those are fail, we'll figure out a few things that work and those might return enough capital to offset the rest of the failure. There's two blog posts that I wrote that are sort of interesting on this, if you want to do that. This was - MoneyBall for Startups was our investment thesis that I blogged right before we started 500 Startups and then this one was maybe about a year and a half ago that was kind of looking at the changes that are going on in - talking a lot about like YC which we've certainly borrowed a lot from as well as First Round Capital and others.
So this lean VC concept is what I'm going to talk about. Now there are other changes in VC that are happening at the other end of the spectrum. So you have large funds that are really almost displacing IPO markets coming with large amounts of capital. That's also a strategy that is working. It's a different game than the one we are playing. And the idea is really kind of simple, make a lot of little bets, figure out which ones work, double down the ones that work. And actually the small variation on that is double downs on the one that worked that aren't too expensive. And the model that we're kind of working with is that we think we can probably find 20% of portfolio that's interesting, at least might return some capital, and probably 5% to 10% of that that's interesting at some scale that's probably north of 10x. And we're starting to see enough consistency with that, that we kind of think that's going to hold up and may be dependent upon on our deal flow and selection and how much we scale, but we think that that will continue working, we will see.
A basic concept for an MVP team than we think about is engineering, marketing, and design. By design, I really mean UX almost. So someone building product, someone making product usable for people or businesses, and then someone scaling that use and hopefully there is a business model baked-in there somewhere. So the theory of kind of what we're trying to do is pretty straightforward and that you're building functional prototypes for some customer demographic, hopefully that cares about it enough to pay, but may use it enough to be valuable.
You want to improve the UX to a point where people start converting and you fix the leaky bucket problem and then you want to scale customer acquisition and distribution and that might be dependent upon financial costs if those customers are profitable right-away or not at all. And there is lots of ways to cut that. So that's how you think about it from an entrepreneur side and I'm leaving off a lot of other stuff about lean startup from Eric Ries and Steve Blank and others who are very much more thoughtful on it. But I want to think about this from the investor side. Right? So now we're trying to take that same approach and really I'm simplifying it into three sort of phases.
It may be less simple than that, but this is good enough. Right? So, incubation stage or angel stage or Bootstrap stage, it's really just building and validating a product. Next stage is testing the market and maybe testing a little bit of revenue and then venture scale might be revenue focus growth, might be non-revenue focus growth, might be profitable revenue focus, so there's different angles you can take there. Let's look at those three sort of steps in a little bit more detail. So the first stage is kind of like I'm saying $25,000 to $100,000, U.S., but what I'm really saying is enough dollars to pay for cycle-time for 1 to 3 founders, maybe over 3 to 6 months. We kind of model like 2.5 founders for six months is a reasonable period of time at 5K, kind of works out to around 50K to 100K in different environments, different products, different teams, that number will vary.
But you have enough kind of shots at it that you can kind of build some things. Your goal here is to be extremely simplistic in a lot of ways which is to identify a customer demographic that you think has an interesting problem or use case and solve for that in the sh**tiest way possible. And I say that for impact, which is your job is to minimally solve the critical problem as worst-case as possible, but sufficiently. And there are different ways of thinking about that that are more Steve Jobs that people don't know what they want and you need to like overbuild for that. But, for a lot of things, particularly things where the problems are not completely solved or not solved well, you don't need to be great at it, you just need to be functional where there are no competitors.
Where there are competitors, you need to be great at it and not just better, but great at it, much better than the existing incumbents. Right? But your goal is really - many VCs and many people in the industry say you need to think big, you need to like grow that market, and it's like bad advice; bad, bad, bad advice. Terrible advice. It's very much selfishly around their business models for growing large companies.
When you are doing product development, you need as tight a use case as possible and you want to be able to experiment with a very defined demographic that has a very specific need that you can test your product against. And you want to just minimally solve that as quick as possible, because you're probably going to be wrong. Right?
So you need a binary sort of yes does this solve it or no it does not for as narrow and tight a use case as possible. And then when you get that working, you could start to increase and scale it. So it's not that you're going to forget about large market or other use cases forever, it's just in the beginning as you're trying to conceive of that concept. You want the sh**tiest successful use case as fast and cheap as possible, because you are going to iterate thought as fast as you can. Got that? Not perfect for all scenarios, but much of it is that that exercise. And the old adage for this in the industry is do the dogs eat the dog food? Right? Although in this case, we're not even talking about dogs, we're talking about one or a small number of customers, not your mom. And from an investor standpoint, what I'm trying to do is figure out if you can solve that problem. And for us mostly we do that through looking at product. I can't guess if you're amazing. If I know you maybe, I can't.
The other big mythology is people think about product market team and everybody says, oh, team is most important or big market is most important and those are crystal ball exercises. You are projecting whether that team is excellent. You are projecting whether that market is big. You may have some knowledge of how big it is today. But the product is there in front of you. What they have built is there. That is factual evidence based on their execution to-date maybe they have historical product success or entrepreneurial success.
So that's why we focus on product. We think the team is really important, but we don't know who the f** they are generally. 80% of our entrepreneurs are first-timers and we don't know them very well. So product is the mirror to the soul of the team. I don't give a f** how big the market is, it might be that big five years from now, but I'm not playing for how big it is right now. Market does matter but product is the team. Their execution is the product. If the product is f**ed up, the team is f**ed up kind of. Some part of it. They can blame each other. Oh it's the engineer, no, it's the designer, no it's like the guy doing the marketing. But some part of that product is a Fourier transform into the teams' sk**s and abilities. Yeah, I failed that course, I slept through the final.
Next phase, so market validation, right? So I get past that first phase. I can build something, someone uses it. Great. You're not an idiot and there is a customer, at least one. Scale. Now, how many customers? What's the cost structure of acquiring those customers? How much money do you make from it and it's a financial equation that you're trying to figure out. So, a marketing and financial equation that you're generally trying to figure out. And there's different pieces that you can tweak. Right?
You can tweak the cost of the structure of the marketing campaigns or customer acquisition comes down, you could change whether you hold physical inventory or not. If it's a physical product, I can increase the user experience, design, pleasure experience so that conversion rates go up or that retention goes up. I have another talk that's called Startup Metrics for Pirates that's about a lot of that thinking. But in general, there is this like state change from when you have built a product that is functional used for a customer segment and then you are doing a scaling exercise around how big that customer segmentation is and what the cost of acquiring those customers versus revenue generated.
And you're trying to figure out can I get to break-even or better or do I have that in sight and then can I solve the financial equation to let me have the runway to figure that out. And if you're thinking from an entrepreneurial standpoint, what you want is to be minimally sufficient around capital raise so that you can get to that next milestone without having to raise a whole bunch of capital when your valuation is low. That's more advanced exercise. And some people say f** it, just raise as much capital, but I don't agree with that. So this exercise is figure out how to scale channels of customer acquisition, maybe you're doing some competitive differentiation from other similar products. You might be looking at whether revenue is starting to work and whether your unit economics might be cash flow profitable at some point or at least they don't s** enough that you think you can get there. Got it?
All right. I've got a big market that might make me money someday is the test that you're trying to get pa**ed. And then the last one and this is where venture comes in is, okay, I think we can take this really big, let's pour some big f**ing money at this and go after it. Right? And it could be that I'm going for acquiring users, could be acquiring revenue, could be, I mean, profitable revenue. If you're not financed, this would have to be something that you're doing through your own cash flow, maybe through borrowing debt.
Actually interesting thing is when you get to cash flow positive unit economics and you're doing that at scale and you can prove it, you should probably be raising debt not equity. Leave that as a proof to the reader, but I think that should be the case more thoughtfully. You might combine debt and equity there. So that's the three things that we're talking about. Right? Okay.
And what I'm really trying to impress upon you is venture capital is not a black art, it's a f**ing glorified mortgage processor. We are trying to find smart people who can build products that solve problems for customers and that we want to give them money and we want to give the money at scale. And this bullsh** around there being only 10 great companies built every year; the unicorn that's so full of sh**, that is so bad. That is not how our economy works.
Probably 50% of U.S GDP is made from non-public companies, probably at least 20% of that from companies smaller than 100 people around the globe, it's probably more like 50% to 80% of global GDP - I'm running out of breath because I'm so emotional. Most innovative companies are small. Most of global GDP is from small companies. Yes, there are great big companies that produce value and do innovation and that's great. But, may a thousand f**ing flowers bloom, and I know the an*logy is actually for something else. But we want to be very efficient at making lots of singles and doubles. We'll get some home runs. And if we keep f**ing swinging for the fences, our hitting form just s**s. And we're going to miss all sorts of on-base opportunities. So, product market revenue.
There is a science to this, it's not perfect yet but you can start to figure out how it works, solving for use case here and some customer segment, solving for scale and possibly profitable channel of the customer acquisition, scale the organization, figure out your optimization whether that's users, revenue profit, whatever. Got it? By the way, if we solve all these problems, world gets better. Companies work more efficiently, people get more jobs. Yes? How have you refined that over time? What did you say? How have you refined that process over time?
I've only had three to five years to iterate on it. So it's mostly theory right now but I believe it to be true. When you started, has anything really change at all in terms of...? Not dramatically. The surprising thing was that I - doesn't look like I was wrong. I mean, 5, 6 years ago, I was spouting this sh** and I was like I had really no evidence. So I was like, I think this is going to work.
Now I got about 600 companies, like, yeah, it's starting to work. I don't - maybe 600 companies is an empirical sample, but I'm getting close. Yeah, it's working. I think it's the only way, but I'm saying everybody like ripping on this as a way to work and saying it's gambling, they're full of sh**. They're doing the gambling. This is actually like very much probabilistic. What I'm doing is way more f**ing scientific than the rest of those motherf**ers. Come on, like, they are like making million dollar bets, 30 of them over four years and thinking they're going to get $1 billion. I'm making 200, 300, and we're just trying to like get like $50 million to $100 million outcomes.
I have a much easier job. I have to work hard, but I have a much easier job. All right. So all that arrogance aside, we didn't know what the hell we're doing when we got started. I had a very limited amount of investment experience. The people I hired had not had any significant venture experience. We are a new fund. We are a small fund. We are crazy strategy. Those are like three strikes you're out.
Any institutional investor is like fine, come back and see us in five years when you have results. Maybe, maybe we do know. I really didn't have a lot of money. I made about $1 million at PayPal. A third went to taxes. A third went to a car or two for a friend and my mom and a house that I had put a partial down-payment on and $300,000 left over, great, put that back into startups and like, hey, I haven't got any money left. And so a lot of people think that I got rich at PayPal and kind of on a relative basis, yes, but by Silicon Valley standards, f** no. I own a house on the East Coast with my mom that's modest and I rent here. Kind of all-in.
We had to make up budget, a lot of the things we're trying to do, do require a fair amount of resource and it's hard to manufacture budget on a small fund through management fees. I won't get into the venture capital economics, but - yeah, so we really had to believe at what we're doing and we really had to have fun at what we're doing. And equal amount of hustle and humility, like, often wrong, never in doubt, but willing to apologize immediately. And I'm kind of shifting gears now and now I'm just talking a little bit more about 500. So like that was the - there's a theory about what we're doing and we're trying to execute on that and I think I have described some of that.
Now I'm going to talk a little bit more about, like, we're not a typical VC funds by any means and that was extremely intentional. Some of it was because my partner Christine was running developer relations at YouTube and Google, I've been doing it at PayPal and sort of a little bit with Facebook with the fbFund and like a lot of it is just being different. I mean this is like competitive differentiation strategies, like, you just don't want to look like the other things that are there. Right?
And not trying to offend anybody, but if you look up and down Sand Hill Road, there's a hell of a lot of khaki and blue shirts and like guys who went to UPenn and Stanford - sorry - and MIT and so like it's really f**ing easy to differentiate. Wear a T-shirt, wear some flip-flops, yell and swear a little bit, be a little too colorful, use Comic Sans fonts and bad slang. You guys think this is just, like, oh, I'm not aware of what's going on, and there is a little bit of science going on. And anyway, I enjoy myself. So like, why not have fun? Like, we are trying something really hard. We're the kind of like a venture firm, but we're also a startup at the same time, like I'm trying to disrupt my industry. Right?
And I have to get people work for me for not very much. So we have to be fun. Fun is mission number one. I absolutely - I say it, like, it is our job to have fun because I can't get people to work this f**ing hard for this little pay, if they're not having fun. It's an absolute cultural fit test, like you have to have fun. And lots of little bets, digital distribution and all that other stuff. Social media thing, we leaned in on that hard right-away, embraced it, and some of that's scary and you get into too much information and scandal and other bullsh**. But in general, like, if you're not actually committing crimes being on social media, it's probably okay.
So if you have the courage of your conviction, say so, do it. It's okay. You'll f** up a little bit. We run a seed fund. And we run accelerator - oh, this thing, 500 - so this was like a really unintentional branding thing that happened where we were just - most of our strategy is discovered. It's not top down, like we thought about it and then figured it out. It was more or like, oh, that worked. Right? So like a lot of the little bets thing happened when I was doing my own angel-investing or at Founders Fund. So everything was really just reactive and discovery strategy, oh that worked - oh that worked, let's do more of that. So much more - I don't claim to be that smart, I just claim to be able to observe what happens and try not to lie to myself about the results.
So like, using social media for, like deal flow, and everything is just like again really obvious. It's just such a natural thing. Hey, you want to like invest in people based on your ideas where you should write your ideas down and shared them with people and if they like those ideas they will come to you and you will get to invest in them. Kind of f**ing basic. And that happens all over the world.
So if you believe the thesis that I presented on all that stuff, the one thing is that right now all of our capital is incredibly concentrated, incredibly focused in a very small amount of geography and actually in a very small amount of demography as well. And we don't really think about like the rest of the world which happens to be anywhere from 3 billion to 6 billion people. So I really do - I'm not trying to have a mission, although we do. I actually think that there is a better investment strategy around investing in people who are not just white and male and don't just live in the Valley. Frankly, we're arbitraging racism and we're going to f**ing clean up on that. It's all going to start working really soon. It's great. It's great sh**. So lots of little bets.
Here is the other one, because we make lots of little bets, any individual bet, very small percentage of the overall fund, we can take risk like crazy risk, like because everything - it doesn't matter if it fails. Right? We don't - it sounds really bad, like, due diligence not as much of a problem. Criminal acts, not as much of a problem. d**h, we've had four founders die in our portfolio. Not a lovely thing and particularly the way that one of - two of them pa**ed not very lovely.
But you see the world at large, you see the community, and like you have a diversification across all of that in many ways. So you can take risk early and that's important because you learn when you take that risk. So the great thing about this investment strategy is if you're an ignorant person with no ability to understand VC, you can grock it really quickly because you make those small bets and you earn.
You may not get the full experience of making the larger bets, so that learning might have to wait until you get there but a traditional VC path might be that you spend 5 to 10 years before you actually get to make real decisions. I got to walk in the door at Founders Fund; Sean was crazy to let me do this. But the fact that I got to make 40 investment decisions in about 15 months was f**ing amazing. And Justin will tell you, like, how like kid-in-a-candy-store happy I was with that whole thing.
Justin make the bigger bets, it actually paid off quite well; SpaceX and Palantir and some others. But - so there's other models that work, but anyway. But the point that I'm trying to make is that I think a lot of venture capital is over-glorified and a lot of the strategy is really just, again, trying to find smart people building smart products and experimentation. And any reasonably intelligent person can probably figure that out, given a little bit of time and experience.
And so that's kind of what we're trying to do with a lot of people that come in, we give them a small budget, maybe $0.5 million to $1 million, maybe like 6 to 12 months we're kind of watch them what they're doing. A woman who works for us, who's running our investment strategy in Brazil, Bedy Yang, three years ago had not done any venture investment ever in her life, not even any angel investment. Today, she's done 40 investments, 22 in Brazil. She is the leading investor in startups in Brazil, which is like a mind-boggling. A woman who has no experience in venture capital is the most frequent investor in startups in Brazil today in a nation of 200 million people. I bet she works like crazy? She works her a** off and she is very smart and she is very pa**ionate about what she does.
But like I fully believe in what we're doing because, like, I went through that and she went through that and Christine went through that, like, and they're not like - we are smart but we're not like amazingly brilliant smart compared to maybe other people's definitions of that. And so just reasonable rational observation of the universe and some amount of experience and learning how to like make a few investments and see the results of that and you can do this too. I'm not saying you should all become VCs, but I think it's - we put the profession on a pedestal more than it needs to be. I'm going long on this.
Yeah, I'm going to skip over a lot of this. I have very specific thoughts about like certain types of investment. Try and be useful. Try and invest in things that actually work and you'll learn over time. The platforms in distribution I think is an incredible advantage. But once you make the investment, this is the crazy thing like a lot of larger VCs are really hands-on, they're really value-added, they take board seats.
And it is useful in many areas, but it tend to be kind of the opposite about that is that most smart people need capital and they can do things and - advice and experience is helpful, but combining the investment stuff with the experience is kind of over-engineering in many cases. We can move a lot faster by decoupling those two things and providing the experience in mentorship at scale through other resources than just ourselves. We believe strongly that the world is our oyster. That is kind of a lot of platforms talk that I'm not going to get into. I want to jump to - this is important and we're still kind of working through this like follow-on investment strategy.
So once we make a first check investment, I talked about how - we'll probably do a second check and maybe a third of those companies and then a third check to maybe half of those. And I've started to think a little bit more about whether we should be doing that second and third check and it's kind of a complex sort of exercise there, but it's not -- even though you might identify that companies are performing you might not always want to make that second check investment. This is kind of narrow if you're in a venture capital. I'd be happy to have beers with you about this. But think about it like visual images. You're investing up the curve, so there's three things. Right?
Here is the flat, here is elbow and here is the wall and kind of think about yourself as an investor or entrepreneur you can make product that's on this thesis too. But you're betting in the flat where price is low and information is scarce. Right? You don't know whether the team or the product is working or anything, but you're just betting at a low cost. At the elbow, something is starting to work. Right? Which is either usage is increasing, revenue increasing, other investors are coming in and something else looks like it's working. And your opportunity is to double down while price is still reasonable relative to previous position. Right?
It hasn't gone crazy and then up the wall is kind of like, okay, something is taking off; price is really accelerating and your ability to catch-up on ownership when you're investing here. If it's up here, it's limited. Right? And so from probabilistic standpoint, you kind of - you own and position X when you bet in the flat and your double down decision on that in the elbow is whether you can double or triple ownership at reasonable cost and at reasonable risk. Again, this kind of gets into a little bit too much detail there. That third check, when it's up the wall, really hard to increase ownership and so a lot of what Peter Thiel talks about a power law distribution and everything is like you want to find the big things or just winning like that. True, but the reality of that statement is most of your ownership is gained down here. Right?
Now, larger investors won't jump in until the elbow or into the wall, they have larger amounts of capital. But your bet on the wall is probably only good if it's a sure thing and only if you have infinite amount of capital to work with. Leave that there; it's still something I'm kind of working on figuring out. So, in summary, kind of the feedback loop on your decisions, on bad decisions your feedback loop is quick. On good decisions, it's not quick at all or at least on great decisions, it's not quick. That's my experience, I don't know if other folks feel the same, but like you can figure out your f** ups in 3 to 6 months usually and you can't figure out your - you can figure out, oh say, something sort of working, but you don't know whether it's awesome until like probably two years in, maybe even three years in.
I have an investment in a company right now that on paper I'm up 5x, maybe even 10x, but it could be zero, it could be 10x. I'm almost like nine years into the investment. And it's like wow! I still don't have the feedback loop on whether that was a good decision or not. Nine years in. But this, like, fast and short method of sort of investing, your short-term metric is not perfect but next round follow-on revenue usage, it's a proxy for success. So you're like seeing, is there any incremental sort of evidence that my previous bet was good that I can determine within 6 to 18 months and use that to learn. Now it sort of works okay. There's lots of other things around winners versus numeric returns. We do a lot of investing sometimes for things that are not economic return. That sounds strange. Right?
When I said we make a lot of small bets and we can take lots of risk on those, we may do an investment - here is a reality, like, we go see a country that we've never invested before, another investor would say we've never invested in that country, we can't - we're not going to do that investment. We like, oh, a country we haven't done an investment for, great marketing opportunity. Let's go do that investment. Right? And we're thinking in terms of future investments and learning not so much into the individual economic return on that investment. We even think a little bit from fund to fund on learning, some fiduciary responsibility challenges there if you're trying to spend funds with your learning.
But using your investment strategy as ways to do interesting things, building marketing relationship understanding that then pay off later is really fascinating and we're starting to like see how like - also it sounds crazy, I don't think people realize how brilliant Ron Conway was, whether intentionally or not, like the large-scale investing strategy you just - marketing impact is amazing. Like, we did not understand that when we got started and just like people start listing you in the press announcements and they think you're good and it's straightforward to transparent. We are still learning. People think we have our sh** together way more than we actually do just because we were in the press constantly. Right?
Now we've leaned into that and we use it a lot. We'll put $50,000 to $100,000 around the company that weighs $1 million or $2 million and we will be in the headline. I worry that pisses off the lead investor, but we're in the f**ing headline for putting in like 5% of the round. Incredible advantage is by doing that type of stuff and most people aren't going to tell you about this, but like that spread bet investment strategy, you get lots of other benefits from learning and marketing that other different investment strategies don't give you. All right, so here is the big experiment. Am I k**ing the time? What's the...? You have five minutes. Five minutes, which means I went over 15 minutes ago.
Yeah, so my theory is that VC has a much, much, much bigger place to go. And this last statement recruiting thousands of VCs. That sounds crazy. We have to focus on network effects and other things because we can't scale our time, although we can keep dollars per partner invested somewhat flat. So like we think about $5 million per partner invested per year. You can do 20 deals at maybe $50,000 to $100,000, seven on a follow-on and maybe $100,000 to $500,000, maybe two or three at $0.5 million to $1 million. For most people, it sounds crazy to do 20 deals a year, but that's actually like kind of easy, one or two a month. At the end of the year, you figure out, okay, the top third, follow-on on those. At the end of that year, you figure out the top half of those. It's somewhat sustainable strategy.
So here is an experiment. How big is the market? I will present to you that at least one out of a 100 people are entrepreneurial and I will define entrepreneurial as person who can create a $10 million a year revenue business. Maybe a bullsh** metric, but let's just say if you thought about your high-school cla** and 100 people in a group that you kind of knew, do you think one of those 100 people was smart enough to create a $10 million of your business? I would say, yes, maybe more or less. There are 7 billion people in the world, 70 million entrepreneurs, how many good years do they have out of lifetime? Maybe 10 out of 70, so call it a seven, so maybe there is 10 million startups for you; I'm probably off by that. So let's say there is somewhere between 1 to 10 million startups per year that might be interesting if you believe interesting is a $10 million revenue possibility.
Now here's where it gets fascinating. Right? So if I give the person $50,000 to $500,000 a year, on the low-end, 1 million entrepreneurs times $50,000 is a $50 billion a year capital deployed business and 10 million entrepreneurs at $500,000 is a $5 trillion a year business. Holy f** ton, that is amazing. And I'm not being greedy here, what I'm saying is, I am impacting humanity. We are impacting humanity. Because what you're doing, you're making everything more efficient, you're solving people's problems.
Right? Probably poverty and happiness are mixed in there somewhere and I can argue this with you if you want. But like if we empower 1 million entrepreneurs a year to solve problems and some percentage of them are successful, we are going to change the f**ing world and we're going to make a f** ton of money at the same time. Everybody thinks that's crazy, but I'm telling you, the economics on international startups are going to be as good as they are in the U.S in 5 to 10 years. Nobody else is going to be ready for that sh**. We are going to, like, pile in.
What do I need? I probably need about 1,000 to 10,000 VCs to help me do that and need about 100,000 to 1 million entrepreneurs. Again, sounds crazy irrational. Right? All right, so here is the global story. World gets bigger, four global languages, English, Chinese, Spanish, and Arabic. There are others that are interesting, those are really interesting, they're not just interesting in those countries. I leave the rest of that.
Again, there's lots of other challenges to fix in those places. But those people are going everywhere. Those people are everywhere. They are not different. Yes, they have cultural differences, yes they have other things, you will get mad at them, you will fight with them, but they are people, they deserve your love, attention, friendship, economic interdependence and capital and we should do that as fast as possible. It's a good thing.
Yeah, so I have a mission.
Thank you.